STRENGTHS

Member of the Andean Community and Association Agreement with Mercosur

Tourism potential

WEAKNESSES

Poorly diversified economy and dependent on hydrocarbons

Poor development of private sector and heavy reliance on public sector

Landlocked country

Size of the informal sector

Insecurity, drug trafficking and corruption

Risk of social unrest

Risk assessment

Growth dependent on public sector

In 2018, growth will be sustained by dynamic internal demand, especially thanks to continued high levels of public spending in an economy dominated by the public sector. Public investment should continue to grow under an ambitious National Economic and Social Development Plan (Plan Nacional de Desarrollo Económico y Social, USD 48.6 billion between 2016 and 2020) first implemented in 2016 and built on an anti-cyclical stimulus objective in the face of falling commodity prices. Focused on the development of infrastructure and state-owned enterprises in the energy sector, this plan targets specifically the gas sector (29% of the country’s exports in 2016) and the refining industry. Nevertheless, the results were below the objectives in 2017, due to a lack of skilled personnel, problems of corruption and priority given to the political agenda rather than the effectiveness of the projects. The level of private investment is expected to remain low, because of a business climate being more than inadequate (152nd in the Doing Business 2018 rankings, with the risk of nationalisation and discrimination against private investors in favour of state-owned enterprises) and dampening confidence. The manufacturing and mining sectors are likely to continue to be characterized by the lack of investment, worn down by structural problems, inefficiency and corruption. Agriculture (employing 32% of the workforce) should be robust provided good weather conditions prevail. Private consumption is expected to grow, in a context of controlled inflation thanks to the boliviano’s dollar peg. Nevertheless, the non-payment of end-of-year civil service bonuses (bonuses subject to growth above 4.5%) could limit this rise. Finally, net exports will contribute negatively to growth. Higher gas exports, linked to the recovery observed in Brazil and Argentina (the two main destinations for Bolivian gas) are unlikely to offset the rise in imports linked to investment projects.

Persistent twin deficits

In 2018, there will still be a significant budget deficit despite the increase in energy royalties associated with rising hydrocarbon prices. The accommodative fiscal policy, under the five-year Investment Plan, as well as the considerable share of spending allocated to civil service wages and social programmes (28% and 19% of public spending respectively in 2016) limits deficit reduction. To finance its budget, Bolivia relies on external debt (bond issue for USD 1 billion in March 2017) and on the financial support of its strategic partners, including China in particular (USD 3.5 billion in loans for projects in 2016). The public debt will, therefore, increase but remain sustainable (external debt amounting to 37% of GDP in 2017).

From the perspective of the current account, the deficit is expected to remain large, burdened by a growing trade deficit. The rise in imports will be greater than that of exports, given the significant need for intermediate products for investment projects and competition from North American liquid gas. This deficit will be partially offset by remittances from expatriate workers (3.4% of GDP in 2016). Weak FDIs (0.5% of GDP in 2016) will force the government to finance it by drawing on declining foreign exchange reserves (14.2 months of imports in 2015, down to 11.6 months in 2016).

Heightened political tensions

In power since 2005, President Evo Morales, from the MAS Party (Movimiento al Socialismo), is exacerbating tension by trying to stand for a fourth term in the upcoming 2019 presidential elections. Written into the constitution, the two-term limit was scrapped by the Constitutional Court in November 2017 on grounds that it didn’t respect the President’s rights. This decision, taken following an appeal by MAS representatives, was seen as having been forced through by the President, after his defeat in the February 2016 referendum (51.3% against unlimited re-election). The appointment of judges to the Supreme and Constitutional Courts (December 2017), marked by 65% of blank or spoiled votes, is a sign of this growing defiance with regard to the government and the judiciary. The latter is criticised for its links to the executive. However, in response to this lack of satisfaction with the ruling party, the opposition is far from providing a convincing alternative, with support for opposition candidates even lower than for President Morales. Meanwhile, the government faces growing numbers of corruption cases involving state-owned enterprises and has been forced to intervene (arrest in June 2017 of top executives in the national gas company, YPFB, for peddling influence when awarding contracts). This further undermines an already mediocre business climate, given the relative legal insecurity (expropriations and nationalisations are still possible) and the ban on any recourse to international arbitration. The government’s failure to meet the demands of diverse social groups is a potential source of popular protest.